How to Sell a Life Insurance Policy

Life settlements offer people the opportunity to sell their life insurance policy when they no longer need it, can no longer afford it, or need quick access to cash. In many cases, selling life insurance is better than surrendering a policy or letting it lapse, but be prepared to accept anywhere between 10%-30% of your policy’s death benefit.

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Lauren Blair has been practicing law for more than 25 years. Lauren has been a licensed member in good standing of the Illinois bar since 1994, the year she graduated from Illinois Institute of Technology’s Chicago-Kent College of Law. Prior to law school, Lauren obtained a Bachelor of Arts in government from Cornell University. For the first 20 years of her practice, she worked in mid-size l...

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UPDATED: Jul 16, 2021

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  • Selling a life insurance policy is called a life settlement.
  • A third party pays the policyholder a one-time lump sum in exchange for the death benefit.
  • After the sale, the third-party purchaser assumes payment of the policy premiums and the originally-named beneficiaries are no longer entitled to any life insurance proceeds.
  • In most cases, life settlement brokers offer anywhere between 10%-30% of a policy’s death benefit not including commission fees.

When you bought your life insurance policy, you probably didn’t think about selling it. Life insurance is an important asset that pays a lump sum tax-free benefit to your named beneficiaries after you die, so why would someone want to sell a life insurance policy? There are many reasons people sell life insurance, and there’s definitely a market of companies that buy life insurance policies. If you’re thinking about selling your life insurance, make sure you know the pros and cons. If you’re looking to get the best life insurance policy, put your ZIP code in our search tool to talk with a knowledgeable insurance professional.

Can I sell my life insurance policy?

Yes, you can sell a life insurance policy. The legal term for selling a life insurance policy is a life settlement.

A life settlement is the sale of a life insurance policy to a third-party for a lump sum payment. The third-party buyer, typically a broker, takes over the premium payments and gets all of the life insurance proceeds when the insured dies. After the sale, the named beneficiaries are no longer entitled to receive the death benefit.

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How much do I get for selling a life insurance policy?

Brokers and other buyers generally pay a relatively small fraction of what the policy is worth. Offers will range somewhere between the policy’s surrender value and significantly less than the death benefit. 

The surrender value, or surrender cash value, is the amount of money a policyholder can withdraw from the cash value buildup in a policy minus any penalties assessed for early termination or early withdrawal of cash from a policy.

If your insurance policy is a whole life insurance policy, or some other kind of cash value life insurance with a cash buildup, the policy will be worth more than the surrender value and may likely exceed the cash value.

In most cases, life settlement brokers offer anywhere between 10%-30% of a policy’s death benefit not including commission fees.

How do I sell an insurance policy?

In order to sell a life insurance policy, the policyholder needs a buyer. It’s safest to consider selling to a vetted professional insurance advisor, life settlement provider or life settlement broker. Brokers represent you, offer advice and seek out settlement providers on your behalf for interested buyers.

As part of the process of selling a life insurance policy, the insured will be asked to provide personal information including health disclosures and medical history. Keep in mind that buyers are most interested in policies where the insured is over 65 years of age, suffers from an illness or has other significant health issues that shorten life expectancy.

In addition to the insured’s personal and medical information, the buyer is interested in the type of life insurance policy (term, whole or universal life insurance), the cash surrender value of the policy, the cash value if any, and the amount of the premiums.

Each company will have its own criteria and eligibility requirements for buying and selling life insurance. For example, many brokers won’t buy life insurance policies unless the death benefit face value is at least $100,000. Some life settlement companies also require the consent of the named beneficiaries.

How do I find life insurance policy buyers?

There are hundreds of life settlement businesses, brokers and providers eager to buy your policy for cash. It’s important to carefully vet life insurance buyers and shop comparisons to make sure you’re getting the best offer available for your life insurance policy.

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What are the pros and cons of selling a life insurance policy?

Many people want to sell their life insurance policy because their children are grown, they get divorced or they no longer have financial dependents to worry about. Some find themselves unable to continue to afford their premiums. Others are looking for an infusion of cash or simply decide they no longer want life insurance coverage. Whatever the reason, make sure you weigh the pros and cons of selling a life insurance policy.

Pros to Selling Your Life Insurance

  • No more premiums
  • Lump-sum cash infusion
  • Better alternative to policy lapse or surrender for cash value 

Cons to Selling Your Life Insurance

  • Named beneficiaries no longer receive the death benefit
  • Relatively low payouts compared to the death benefit
  • High broker commission fees and other costs 
  • Possible negative tax implications of lump sum cash payout
  • Could affect eligibility for Medicare and other public assistance benefits

Alternatives to Selling Your Life Insurance

Life settlements are not the only option for people who can no longer afford their life insurance or who may need an influx of cash. You may be able to borrow against your life insurance policy if you need cash right away. Many providers are willing to work with policyholder’s who can no longer afford the premiums by lowering rates in exchange for reducing the death benefit. 

Get Help

Life settlements offer people the opportunity to sell their life insurance policy when they no longer need it, can no longer afford it, or need quick access to cash. In many cases, selling life insurance is better than surrendering a policy or letting it lapse, but be prepared to accept anywhere between 10%-30% of your policy’s death benefit. You should also be prepared for the reaction of beneficiaries when they learn they will no longer receive a distribution of the life insurance proceeds. Sure, there are pros and cons to life settlements, but the most important takeaway is to research all of your options and consult with a professional before making a decision to sell your life insurance. To find out if a life settlement is the right option for you, click here to talk with a life insurance advisor in your area.

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